01—Abstract
Summary
Summary of the 10-Q filed August 3, 2011. Cited figures are marked; the original filing is the authoritative source.
American Express Company (AXP) reported strong performance for the quarter ending June 29, 2011, with significant year-over-year growth in several key metrics.
Total revenues net of interest expense increased by 12% to $7.6 billiona, driven primarily by a 16% rise in discount revenue, fueled by an 18% increase in billed business volumes globally. This growth was supported by improved credit performance, leading to a 45% decrease in provisions for losses. Despite increased investments in rewards programs and higher salaries and employee benefits, the company's expenses grew by 21%.
However, a lower effective tax rate, down to 27% from 36% in the prior year, contributed to a 31% increase in net income to $1.3 billionb and a rise in diluted Earnings Per Share (EPS) to $1.10. The company maintained strong capital ratios, well above regulatory requirements, and continued its commitment to returning capital to shareholders through dividends and share repurchases.
02—Key points
Key Highlights
- Total revenues net of interest expense grew 12% year-over-year to $7.6 billion, driven by an 18% increase in worldwide billed business volumes.
- Discount revenue, the largest revenue source, increased 16% to $4.3 billion, reflecting strong cardholder spending.
- Provisions for losses decreased significantly by 45% to $357 million, indicating improved credit quality and lower write-offs.
- Net income rose 31% to $1.3 billion, and diluted EPS increased to $1.10, benefiting from revenue growth and a lower effective tax rate (27% vs 36% prior year).
- Cardmember rewards expenses increased substantially by 35% to $1.6 billion due to higher spending volumes and increased redemption costs.
- The company's capital position remained robust, with Tier 1 risk-based capital ratio at 12.3% and Tier 1 leverage ratio at 10.1% as of June 30, 2011.
- American Express returned $966 million to shareholders in the quarter through dividends and share repurchases, representing approximately 61% of capital generated.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2011filed August 3, 2011Financial Statements
Q2 FY2011 against Q2 FY2010
| Line item | Q2 FY2011Q2 FY2010 | Change |
|---|---|---|
| Operating Income | $1.29B$1.59B | −18.8% |
| Interest Expense | $577.00M$610.00M | −5.4% |
| Net Income | $1.33B$1.02B | +30.9% |
| EPS (Basic) | $1.11$0.84 | +32.1% |
| EPS (Diluted) | $1.10$0.84 | +31.0% |
| Shares Outstanding (Basic) | 1.19B1.19B | 0.0% |
| Shares Outstanding (Diluted) | 1.20B1.20B | 0.0% |
05—Questions
Frequently Asked Questions
What were the main drivers of revenue growth in the second quarter of 2011?
Revenue growth was primarily driven by a strong increase in billed business volumes, up 18% worldwide. Discount revenue, the largest contributor, rose 16% as a result of this increased cardholder spending. Travel commissions and fees also saw a healthy increase of 21%.
How did credit performance impact the company's results?
Credit performance improved significantly, leading to a substantial 45% decrease in provisions for losses compared to the prior year. This improvement is reflected in lower cardmember loan write-off rates and a reduction in loss reserves, contributing positively to profitability.
What is the company's outlook on its financial targets?
American Express reaffirmed its financial targets of achieving, on average and over time, at least 8% revenue growth net of interest expense, 12-15% EPS growth, and a return on average equity of 25% or more. The company's performance in this quarter aligns with these objectives.
How is the company managing expenses, particularly rewards costs?
While overall expenses increased 21%, driven by investments in rewards programs and higher salaries, the company is focused on managing operating expenses. Cardmember rewards expenses rose 35%, reflecting higher spending volumes and increased redemption costs, which the company is closely monitoring.
06—Continue